Accounting Knowledge Transfer

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1. Question 1:
Proficient:
Describe the major differences between income statements for a service company and a merchandise company.
The difference between a services company and a merchandise company income statements centers on how the company’s profitability or net income is determined. To determine the net income for a service-based company, the total expenses incurred during an accounting period are deducted from the earned revenue. A merchandise company is a more complex operation; therefore, it would have a more complex method of getting to its net income. A merchandise company deducts from its revenues, the cost of the goods sold (the amount of the product) to reach its gross margin. Then the expenses (operating cost) are deducted from the gross margin to reach the net income. These are three component help create a merchandise company net income or net loss that shows the company’s profitability.
Distinguished:
In detail, describe how the gross margin for a merchandising company is determined.
Gross margin for a merchandising company is determined by taking the gross sales and reducing it by the sales discounts and returns allowances to get to the net sales, cost of goods sold are subtracted from the net sales total to which equals the gross margin.
2. Question 2:
Proficient:
As part of the calculation for cost of goods sold it is necessary to determine the value of goods on hand, termed merchandise inventory. Accountants use two basic methods for determining the amount of merchandise inventory. Identify the two methods and describe the circumstances (including examples of users of each method) under which each method would be used.
Perpetual inventory and periodic inventory are the two types of inventories accountants...

... middle of paper ...

...ket is highly competitive and they have limited price augmentation.

References
Averkamp, H. (2014, January 1). Accounting Principles | Explanation | AccountingCoach. AccountingCoach.com. Retrieved May 2, 2014, from http://www.accountingcoach.com/accounting-principles/explanation
Consultants. (2012, January 1). Free Industry Statistics - Sorted by Highest Gross Margin. Free Industry Statistics: Gross Margin: Butler Consultants. Retrieved May 3, 2014, from http://research.financial-projections.com/IndustryStats-GrossMargin.html
Hermanson, R., Edwards, J., & Maher, M. (2010).Accounting principles: A business perspective. (Vol. 2). Textbook Equity inc. DOI: www.textbookequity.com
Siegel Ph.D. CPA, Joel G.; Shim Ph.D., Jae K. (2010-02-01). Dictionary of Accounting Terms (Barron's Dictionary of Accounting Terms) (p. 129). Barron's Educational Series. Kindle Edition.

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